OVERSEA-CHINESE BANKING CORPORATION LIMITED (Incorporated in Singapore. Registration Number: 193200032W) AND ITS SUBSIDIARIES UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS Contents Page Auditors Review Report 1 Unaudited Condensed Income Statement - Group 2 Unaudited Condensed Statement of Comprehensive Income - Group 3 Unaudited Condensed Balance Sheet - Group 4 Unaudited Condensed Statement of Changes in Equity - Group 5 Unaudited Condensed Cash Flow Statement - Group 7 Notes to the Unaudited Condensed Interim Financial Statements 8
UNAUDITED CONDENSED INCOME STATEMENT - 1H 2014 1H 2013 Note Interest income 3,482,818 2,982,469 Interest expense (1,269,748) (1,109,315) Net interest income 3 2,213,070 1,873,154 Premium income 3,642,867 3,439,716 Investment income 1,309,783 1,304,282 Net claims, surrenders and annuities (2,479,102) (2,703,500) Change in life assurance fund contract liabilities (1,411,290) (1,224,719) Commission and others (658,972) (621,824) Profit from life assurance 403,286 193,955 Premium income from general insurance 79,224 76,690 Fees and commissions (net) 4 705,298 662,877 Dividends 66,745 44,624 Rental income 35,324 34,641 Other income 5 359,800 269,241 Non-interest income 1,649,677 1,282,028 Total income 3,862,747 3,155,182 Staff costs (913,425) (866,807) Other operating expenses 6 (552,612) (523,424) Total operating expenses (1,466,037) (1,390,231) Operating profit before allowances and amortisation 2,396,710 1,764,951 Amortisation of intangible assets (28,181) (29,016) Allowances for loans and impairment of other assets 7 (106,304) (103,802) Operating profit after allowances and amortisation 2,262,225 1,632,133 Share of results of associates and joint ventures 34,510 35,840 Profit before income tax 2,296,735 1,667,973 Income tax expense (357,154) (290,630) Profit for the financial period 1,939,581 1,377,343 Attributable to: Equity holders of the Bank 1,819,746 1,293,309 Non-controlling interests 119,835 84,034 1,939,581 1,377,343 Earnings per share (cents) Basic 52.1 36.0 Diluted 52.0 35.9 The accompanying notes form an integral part of these unaudited condensed interim financial statements. 2
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME - 1H 2014 1H 2013 Profit for the financial period 1,939,581 1,377,343 Other comprehensive income: Available-for-sale financial assets Gains/(losses) for the financial period 191,084 (441,813) Reclassification of (gains)/losses to income statement - on disposal (41,986) (92,094) - on impairment 33 122 Tax on net movements (30,020) 52,737 Defined benefit plans remeasurements (1) (1,440) (4,914) Exchange differences on translating foreign operations 1,035 (5,559) Other comprehensive income of associates and joint ventures (4,083) 1,265 Total other comprehensive income, net of tax 114,623 (490,256) Total comprehensive income for the financial period, net of tax 2,054,204 887,087 Total comprehensive income attributable to: Equity holders of the Bank 1,920,970 816,703 Non-controlling interests 133,234 70,384 2,054,204 887,087 (1) Item that will not be reclassified to income statement. The accompanying notes form an integral part of these unaudited condensed interim financial statements. 3
UNAUDITED CONDENSED BALANCE SHEET - As at 30 June 2014 30 June 2014 31 December 2013 Note EQUITY Attributable to equity holders of the Bank Share capital 9 9,917,478 9,448,282 Capital reserves 467,463 418,368 Fair value reserves 607,673 493,473 Revenue reserves 15,900,831 14,755,420 26,893,445 25,115,543 Non-controlling interests 3,021,648 2,963,937 Total equity 29,915,093 28,079,480 LIABILITIES Deposits of non-bank customers 10 201,296,812 195,973,762 Deposits and balances of banks 10 21,597,958 21,548,850 Due to associates 159,421 167,662 Trading portfolio liabilities 804,194 897,874 Derivative payables 11 3,872,070 5,508,684 Other liabilities 4,469,109 4,250,580 Current tax 960,468 1,025,000 Deferred tax 1,182,248 1,111,986 Debt issued 12 28,870,825 26,701,876 263,213,105 257,186,274 Life assurance fund liabilities 55,285,849 53,182,631 Total liabilities 318,498,954 310,368,905 Total equity and liabilities 348,414,047 338,448,385 ASSETS Cash and placements with central banks 19,498,420 19,340,810 Singapore government treasury bills and securities 11,569,027 11,718,724 Other government treasury bills and securities 11,034,219 8,892,113 Placements with and loans to banks 37,672,289 39,572,500 Loans and bills receivable 13 15 175,571,897 167,854,086 Debt and equity securities 20,943,820 19,602,314 Assets pledged 1,588,905 2,109,722 Assets held for sale 2,443 1,707 Derivative receivables 11 4,286,037 5,194,163 Other assets 3,991,094 3,900,403 Deferred tax 82,961 106,794 Associates and joint ventures 394,239 379,768 Property, plant and equipment 1,885,773 1,898,096 Investment property 746,872 731,350 Goodwill and intangible assets 3,706,582 3,740,978 292,974,578 285,043,528 Life assurance fund investment assets 55,439,469 53,404,857 Total assets 348,414,047 338,448,385 The accompanying notes form an integral part of these unaudited interim condensed financial statements. 4
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY - Attributable to equity holders of the Bank In $ 000 Share capital Capital reserves Fair value reserves Revenue reserves Total Noncontrolling interests Total equity Balance at 1 January 2014 9,448,282 418,368 493,473 14,755,420 25,115,543 2,963,937 28,079,480 Total comprehensive income for the financial period Profit for the financial period 1,819,746 1,819,746 119,835 1,939,581 Other comprehensive income Available-for-sale financial assets Gains for the financial period 177,495 177,495 13,589 191,084 Reclassification of (gains)/losses to income statement - on disposal (40,323) (40,323) (1,663) (41,986) - on impairment 12 12 21 33 Tax on net movements (27,865) (27,865) (2,155) (30,020) Defined benefit plans remeasurements (1,225) (1,225) (215) (1,440) Exchange differences on translating foreign operations (2,837) (2,837) 3,872 1,035 Other comprehensive income of associates and joint ventures 4,881 (8,914) (4,033) (50) (4,083) Total other comprehensive income, net of tax 114,200 (12,976) 101,224 13,399 114,623 Total comprehensive income for the financial period 114,200 1,806,770 1,920,970 133,234 2,054,204 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Transfers 50,238 (50,238) Dividends to non-controlling interests (76,505) (76,505) DSP reserve from dividends on unvested shares 1,482 1,482 1,482 Establishment of a subsidiary 982 982 Ordinary and preference dividends paid in cash (126,980) (126,980) (126,980) Share-based staff costs capitalised 6,910 6,910 6,910 Share buyback held in treasury (81,495) (81,495) (81,495) Shares issued in-lieu of ordinary dividends 485,623 (485,623) Shares issued to non-executive directors 735 735 735 Shares purchased by DSP Trust (1,839) (1,839) (1,839) Shares vested under DSP Scheme 32,709 32,709 32,709 Treasury shares transferred/sold 64,333 (38,923) 25,410 25,410 Total contributions by and distributions to owners 469,196 49,095 (661,359) (143,068) (75,523) (218,591) Balance at 30 June 2014 9,917,478 467,463 607,673 15,900,831 26,893,445 3,021,648 29,915,093 Included: Share of reserves of associates and joint ventures 9,600 134,430 144,030 (2,971) 141,059 The accompanying notes form an integral part of these unaudited condensed interim financial statements. 5
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY - Attributable to equity holders of the Bank In $ 000 Share capital Capital reserves Fair value reserves Revenue reserves Total Noncontrolling interests Total equity Balance at 1 January 2013 9,953,321 375,520 895,345 14,580,211 25,804,397 2,896,604 28,701,001 Total comprehensive income for the financial period Profit for the financial period 1,293,309 1,293,309 84,034 1,377,343 Other comprehensive income Available-for-sale financial assets Losses for the financial period (427,574) (427,574) (14,239) (441,813) Reclassification of (gains)/losses to income statement - on disposal (88,809) (88,809) (3,285) (92,094) - on impairment 89 89 33 122 Tax on net movements 49,610 49,610 3,127 52,737 Defined benefit plans remeasurements (4,181) (4,181) (733) (4,914) Exchange differences on translating foreign operations (6,635) (6,635) 1,076 (5,559) Other comprehensive income of associates and joint ventures (998) 1,892 894 371 1,265 Total other comprehensive income, net of tax (467,682) (8,924) (476,606) (13,650) (490,256) Total comprehensive income for the financial period (467,682) 1,284,385 816,703 70,384 887,087 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Transfers 11 (11) Distributions and dividends to non-controlling interests (82,082) (82,082) DSP reserve from dividends on unvested shares 1,625 1,625 1,625 Ordinary and preference dividends paid in cash (643,349) (643,349) (643,349) Redemption of preference shares (499,950) (50) (500,000) (500,000) Share-based staff costs capitalised 6,532 6,532 6,532 Share buyback held in treasury (109,063) (109,063) (109,063) Shares issued to non-executive directors 850 850 850 Shares purchased by DSP Trust (1,726) (1,726) (1,726) Shares vested under DSP Scheme 40,077 40,077 40,077 Treasury shares transferred/sold 86,254 (34,954) 51,300 51,300 Total contributions by and distributions to owners (521,909) 9,940 (641,785) (1,153,754) (82,082) (1,235,836) Balance at 30 June 2013 9,431,412 385,460 427,663 15,222,811 25,467,346 2,884,906 28,352,252 Included: Share of reserves of associates and joint ventures 4,704 82,345 87,049 (4,729) 82,320 The accompanying notes form an integral part of these unaudited condensed interim financial statements. 6
UNAUDITED CONDENSED CASH FLOW STATEMENT - In $ 000 1H 2014 1H 2013 Cash flows from operating activities Profit before income tax 2,296,735 1,667,973 Adjustments for non-cash items: Allowances for loans and impairment of other assets 106,304 103,802 Amortisation of intangible assets 28,181 29,016 Change in fair value for hedging transactions and trading securities (29,733) 127,366 Depreciation of property, plant and equipment and investment property 105,878 100,699 Net (gain)/loss on disposal of interests in subsidiary, associate and joint venture (31,106) 2,731 Net gain on disposal of government, debt and equity securities (65,068) (92,959) Net gain on disposal of property, plant and equipment and investment property (230) (3,134) Share-based staff costs 7,626 6,988 Share of results of associates and joint ventures (34,510) (35,840) Items relating to life assurance fund Surplus before income tax 504,498 271,984 Surplus transferred from life assurance fund (403,286) (193,955) Operating profit before change in operating assets and liabilities 2,485,289 1,984,671 Change in operating assets and liabilities: Deposits of non-bank customers 5,314,809 11,138,897 Deposits and balances of banks 49,108 (1,311,418) Derivative payables and other liabilities (1,443,170) 1,017,029 Trading portfolio liabilities (93,680) (454,475) Government securities and treasury bills (1,941,158) 935,124 Trading securities (861,740) (1,912,466) Placements with and loans to banks 2,310,927 (2,070,282) Loans and bills receivable (7,858,753) (14,906,328) Derivative receivables and other assets 806,799 77,718 Net change in investment assets and liabilities of life assurance fund (35,552) 163,558 Cash used in operating activities (1,267,121) (5,337,972) Income tax paid (332,403) (309,616) Net cash used in operating activities (1,599,524) (5,647,588) Cash flows from investing activities Dividends from associates 219 963 (Increase)/decrease in associates and joint ventures (8,322) 36,635 Net cash inflow from establishment of a subsidiary 982 Purchases of debt and equity securities (5,593,677) (5,953,585) Purchases of property, plant and equipment and investment property (141,251) (159,432) Proceeds from disposal of debt and equity securities 5,502,610 3,525,529 Proceeds from disposal of interests in associate and joint venture 63,068 Proceeds from disposal of property, plant and equipment and investment property 9,350 7,849 Net cash used in investing activities (167,021) (2,542,041) Cash flows from financing activities Distributions and dividends paid to non-controlling interests (76,505) (82,082) Dividends paid to equity holders of the Bank (Note 8) (126,980) (637,900) Increase in other debt issued 412,624 7,578,634 Issue of subordinated debt 2,488,245 Proceeds from treasury shares transferred/sold under the Bank s employee share schemes 25,410 51,300 Redemption of preference shares (500,000) Redemption of subordinated debt issued (711,930) (720,691) Share buyback held in treasury (81,495) (109,063) Net cash from financing activities 1,929,369 5,580,198 Net currency translation adjustments (5,214) (27,448) Net change in cash and cash equivalents 157,610 (2,636,879) Cash and cash equivalents at 1 January 19,340,810 16,396,833 Cash and cash equivalents at 30 June 19,498,420 13,759,954 The accompanying notes form an integral part of these unaudited condensed interim financial statements. 7
These notes form an integral part of the unaudited condensed interim financial statements. The unaudited condensed interim financial statements were authorised by the Board of Directors on 04 August 2014. 1. General Oversea-Chinese Banking Corporation Limited ( the Bank ) is incorporated and domiciled in Singapore and is listed on the Singapore Exchange. The address of the Bank s registered office is 65 Chulia Street, #06-00 OCBC Centre, Singapore 049513. The unaudited condensed interim financial statements relate to the Bank and its subsidiaries (together referred to as the Group) and the Group's interests in associates and joint ventures. The Group is principally engaged in the business of banking, life assurance, general insurance, asset management, investment holding, futures and stockbroking. 2. Basis of preparation 2.1 Statement of compliance The unaudited condensed interim financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ) 34 Interim Financial Reporting, including the modification to FRS 39 Financial Instruments: Recognition and Measurement requirement on loan loss provisioning under Notice to Banks No. 612 'Credit Files, Grading and Provisioning' issued by the Monetary Authority of Singapore ( MAS ), and do not include all of the information required for full annual financial statements. These unaudited condensed interim financial statements are to be read in conjunction with the financial statements as at and for the year ended 31 December 2013. 2.2 Basis of presentation The unaudited condensed interim financial statements are presented in Singapore Dollar, rounded to the nearest thousand unless otherwise stated. The unaudited condensed interim financial statements have been prepared under the historical cost convention, except as disclosed in the financial statements as at and for the year ended 31 December 2013. 2.3 Use of estimates and judgements The preparation of unaudited condensed interim financial statements in conformity with FRS requires management to exercise its judgement, use estimates and make assumptions in the application of accounting policies on the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on management s best knowledge of current events and actions, actual results may ultimately differ from these estimates. In preparing these unaudited condensed interim financial statements, the significant judgements made by management in applying the accounting policies and the key sources of estimation uncertainty were the same as those applied in the financial statements as at and for the year ended 31 December 2013. 8
2. Basis of preparation (continued) 2.4 Significant accounting policies The following new/revised financial reporting standards and interpretations were applied with effect from 1 January 2014: FRS 27 (Revised) FRS 28 (Revised) FRS 32 (Amendments) FRS 36 (Amendments) FRS 39 (Amendments) FRS 110 FRS 111 FRS 112 FRS 27, 110, 112 (Amendments) Separate Financial Statements Investments in Associates and Joint Ventures Offsetting Financial Assets and Financial Liabilities Recoverable Amount Disclosures for Non-Financial Assets Novation of Derivatives and Continuation of Hedge Accounting Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Investment Entities FRS 110 introduces a new control model to determine whether an investee should be consolidated by focusing on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns. In particular, FRS 110 requires the Group to consolidate investees that it controls on the basis of de facto circumstances and this will lead to a reassessment of the control conclusion in respect of investees and may change the basis of consolidation which applies to these financial statements. FRS 112 brings together into a single standard all the disclosure requirements about an entity s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. It requires the disclosure of information about the nature, risks and financial effects of these interests. The initial application of the above standards (including their consequential amendments) and interpretations did not have any material impact on the Group s financial statements. Except as described above, the accounting policies applied by the Group in the unaudited condensed interim financial statements are the same as those applied by the Group in its financial statements as at and for the year ended 31 December 2013. 3. Net interest income 1H 2014 1H 2013 Interest income Loans to non-bank customers 2,470,839 2,161,260 Placements with and loans to banks 505,335 370,214 Other interest-earning assets 506,644 450,995 3,482,818 2,982,469 Interest expense Deposits of non-bank customers (997,973) (851,906) Deposits and balances of banks (77,639) (92,095) Other borrowings (194,136) (165,314) (1,269,748) (1,109,315) Net interest income 2,213,070 1,873,154 4. Fees and commissions (net) 1H 2014 1H 2013 Fee and commission income 724,799 682,426 Fee and commission expense (19,501) (19,549) Fees and commissions (net) 705,298 662,877 9
5. Other income 1H 2014 1H 2013 Net trading income 232,443 146,144 Net gain from investment securities 65,068 92,959 Net gain/(loss) from disposal of interests in subsidiary, associate and joint venture 31,106 (2,731) Net gain from disposal of properties 1,406 3,152 Others 29,777 29,717 359,800 269,241 6. Other operating expenses 1H 2014 1H 2013 Property, plant and equipment: Depreciation 105,878 100,699 Maintenance and hire 39,628 40,684 Rental expenses 36,462 37,180 Others 87,109 79,188 269,077 257,751 Other operating expenses 283,535 265,673 Total other operating expenses 552,612 523,424 7. Allowances for loans and impairment of other assets 1H 2014 1H 2013 Specific allowances for loans 58,742 13,305 Portfolio allowances for loans 58,533 88,624 (Write-back)/impairment charge of investment securities (9,113) 278 (Write-back)/impairment charge of other assets (1,858) 1,595 Net allowances and impairment 106,304 103,802 8. Dividends paid/payable 1H 2014 1H 2013 Ordinary dividends: 2012 final tax exempt dividend of 17 cents 584,235 2013 final tax exempt dividend of 17 cents 584,368 Preference dividends: Class B 5.1% tax exempt (2013: 5.1% tax exempt) 30,879 Class G 4.2% tax exempt (2013: 4.2% tax exempt) 8,290 8,290 Class M 4.0% tax exempt (2013: 4.0% tax exempt) 19,945 19,945 612,603 643,349 Cash which was paid on 20 June 2014 in respect of the 2013 final tax exempt dividend of 17 cents amounted to $98.8 million. 56.5 million ordinary shares were issued on 20 June 2014 pursuant to the OCBC Scrip Dividend Scheme in-lieu of cash for the remaining balance of $485.6 million (Note 9). The OCBC Scrip Dividend Scheme was not applicable to the 2012 final tax exempt dividend of 17 cents. 10
9. Share capital 2014 2013 2014 2013 Shares ( 000) Shares ( 000) Ordinary shares At 1 January 3,441,177 3,441,100 8,283,299 7,267,065 Redemption of preference shares 1,000,050 Shares issued in-lieu of ordinary dividends (Note 8) 56,541 485,623 Shares issued to non-executive directors 76 77 735 850 Transfer from share-based reserves for options and rights exercised 15,334 At 30 June 2014/31 December 2013 3,497,794 3,441,177 8,769,657 8,283,299 Treasury shares At 1 January (8,368) (10,159) (230,848) (209,575) Share buyback (8,400) (14,459) (81,495) (150,382) Share Option Schemes 2,625 7,896 15,518 46,737 Share Purchase Plan 1,140 5,180 9,892 47,418 Treasury shares transferred to DSP Trust 4,026 3,174 38,923 34,954 At 30 June 2014/31 December 2013 (8,977) (8,368) (248,010) (230,848) Preference shares At 1 January: Class B 10,000 1,000,000 Class E 5,000 500,000 Class G 395,831 395,831 395,831 395,831 Class M 1,000,000 1,000,000 1,000,000 1,000,000 1,395,831 2,895,831 Class B shares redeemed during the period (10,000) (1,000,000) Class E shares redeemed during the period (5,000) (500,000) At 30 June 2014/31 December 2013 1,395,831 1,395,831 Issued share capital, at 30 June 2014/31 December 2013 9,917,478 9,448,282 10. Deposits and balances of non-bank customers and banks 30 June 2014 31 December 2013 Deposits of non-bank customers Current accounts 60,581,186 59,108,932 Savings deposits 34,342,482 32,208,657 Term deposits 74,072,757 75,930,889 Structured deposits 6,095,883 5,633,831 Certificate of deposits issued 21,156,153 20,456,523 Other deposits 5,048,351 2,634,930 201,296,812 195,973,762 Deposits and balances of banks 21,597,958 21,548,850 222,894,770 217,522,612 11
11. Derivative financial instruments The derivative financial instruments shown in the following tables are held for both trading and hedging purposes. The contractual or underlying principal amounts of these derivative financial instruments and their corresponding gross positive (derivative receivables) and negative (derivative payables) fair values at balance sheet date are analysed below. 30 June 2014 31 December 2013 Principal notional amount Derivative receivables Derivative payables Principal notional amount Derivative receivables Derivative payables ($ 000) Foreign exchange derivatives 292,781,120 2,002,604 1,476,396 255,034,098 2,589,892 2,795,925 Interest rate derivatives 269,588,124 2,034,783 2,165,643 245,041,723 2,346,538 2,482,395 Equity derivatives 3,443,502 52,768 44,086 2,256,867 42,902 27,623 Credit derivatives 20,478,242 182,181 176,970 20,470,692 187,307 183,771 Other derivatives 1,241,966 13,701 8,975 1,175,350 27,524 18,970 Total 587,532,954 4,286,037 3,872,070 523,978,730 5,194,163 5,508,684 12. Debt issued 30 June 31 December 2014 2013 Subordinated debt (unsecured) [Note 12.1] 6,152,661 4,411,958 Fixed and floating rate notes (unsecured) [Note 12.2] 5,629,043 4,340,107 Commercial papers (unsecured) [Note 12.3] 16,235,833 17,089,337 Structured notes (unsecured) [Note 12.4] 853,288 860,474 28,870,825 26,701,876 12.1 Subordinated debt (unsecured) (a) During the six months ended 30 June 2014, the following subordinated debts were issued. 30 June 2014 Note Issue date Maturity date $ 000 Issued by the Bank: US$1.0 billion 4.00% subordinated notes (i) 15 Apr 2014 15 Oct 2024 1,247,018 US$1.0 billion 4.25% subordinated notes (ii) 19 Jun 2014 19 Jun 2024 1,241,227 (i) (ii) The subordinated notes are redeemable in whole at the option of the Bank on 15 October 2019. They can be written off in whole or in part if the MAS determines that the Bank would become non-viable. Interest is payable semi-annually on 15 April and 15 October each year at 4.00% per annum up to 15 October 2019, and thereafter at a fixed rate per annum equal to the then prevailing 5-year US Dollar Swap Rate plus 2.203% if the redemption option is not exercised. The Bank had entered into interest rate swaps to manage the risk of the subordinated notes and the cumulative fair value change of the risk hedged is included in the carrying value. The subordinated notes qualify as Tier 2 capital for the Group. The subordinated notes can be written off in whole or in part if the MAS determines that the Bank would become non-viable. Interest is payable semi-annually on 19 June and 19 December each year at 4.25% per annum. The Bank had entered into interest rate swaps to manage the risk of the subordinated notes and the cumulative fair value change of the risk hedged is included in the carrying value. The subordinated notes qualify as Tier 2 capital for the Group. 12
12. Debt issued (continued) 12.1 Subordinated debt (unsecured) (continued) (b) During the six months ended 30 June 2014, the following subordinated debt was redeemed and cancelled. Issue date Redemption date Issued by the Bank: SGD711.93 million 5.60% notes 27 Mar 2009 27 Mar 2014 (c) Details of other subordinated debts can be found in the financial statements as at and for the year ended 31 December 2013. 12.2 Fixed and floating rate notes (unsecured) 30 June 2014 31 December 2013 Issue date Maturity date Issued by the Bank: AUD2 billion (2013: AUD1.5 billion) floating rate notes 14 Jul 2011 17 Apr 2014 14 Jul 2014 24 Mar 2017 2,347,547 1,694,295 HKD1 billion 2.20% fixed rate notes 19 Jan 2012 19 Jan 2017 161,771 163,687 USD1 billion 1.625% fixed rate bonds 13 Mar 2012 13 Mar 2015 1,249,087 1,265,382 USD715 million (2013: USD560 million) floating rate notes 13 Aug 2012 10 Jun 2014 25 Feb 2015 2 May 2017 892,453 708,205 CNH500 million 3.50% fixed rate notes 5 Feb 2013 5 Feb 2020 100,590 104,418 GBP250 million floating rate notes 15 May 2014 15 May 2017 531,135 CNH200 million 2.70% fixed rate notes 5 Jun 2014 5 Jun 2017 40,228 5,322,811 3,935,987 Issued by a subsidiary: IDR973 billion 6.40% fixed rate notes 19 Feb 2013 1 Mar 2014 101,128 IDR529 billion 6.90% fixed rate notes 19 Feb 2013 19 Feb 2015 55,473 54,891 IDR1,498 billion 7.40% fixed rate notes 19 Feb 2013 19 Feb 2016 156,939 155,346 IDR900 billion 7.00% fixed rate notes 18 Apr 2013 18 Apr 2016 93,820 92,755 306,232 404,120 Total fixed and floating rate notes 5,629,043 4,340,107 13
12. Debt issued (continued) 12.3 Commercial papers (unsecured) 30 June 2014 31 December 2013 Note Issued by the Bank (a) 16,113,662 16,948,995 Issued by a subsidiary (b) 122,171 140,342 16,235,833 17,089,337 (a) The commercial papers were issued by the Bank under its ECP programme and USCP programme, which were updated to the programme size of USD10 billion each in 2012. The notes outstanding at 30 June 2014 were issued between 2 January 2014 (2013: 24 July 2013) and 24 June 2014 (2013: 23 December 2013), and mature between 1 July 2014 (2013: 2 January 2014) and 12 December 2014 (2013: 10 June 2014), yielding between 0.18% and 2.64% (2013: 0.13% and 2.64%). (b) The commercial papers were issued by the Group's leasing subsidiary under its MYR500 million 7- year CP/MTN programme expiring in 2018. The notes outstanding as at 30 June 2014 were issued between 21 February 2014 (2013: 22 August 2013) and 27 June 2014 (2013: 30 December 2013), and mature between 7 July 2014 (2013: 6 January 2014) and 9 October 2014 (2013: 3 March 2014), with interest rate ranging from 3.45% to 3.60% (2013: 3.33% to 3.49%). 12.4 Structured notes (unsecured) 30 June 2014 31 December 2013 Issued by the Bank: Issue date Maturity date Credit linked notes 16 Dec 2011 16 Jun 2014 20 Sep 2014 8 Sep 2025 614,627 612,374 Fixed rate notes 25 Jul 2012 3 Dec 2013 25 Jul 2017 3 Dec 2038 162,262 164,400 Foreign exchange linked notes 4 Mar 2013 6 Feb 2014 30 Jan 2015 23 Mar 2015 34,935 40,746 Interest rate linked notes 25 Jun 2013 27 Jun 2016 10,000 10,000 Commodity linked notes 7 Mar 2014 15 Sep 2014 6,866 9,107 Equity-linked notes 17 Jan 2014 30 Jun 2014 4 July 2014 30 Oct 2014 24,598 23,847 853,288 860,474 The structured notes were issued by the Bank under its Structured Note and Global Medium Term Notes Programmes and are carried at amortised cost, except for $509.1 million included under credit linked notes (2013: $442.2 million) which were held at fair value through profit or loss. 14
13. Loans and bills receivable 30 June 31 December 2014 2013 Gross loans 177,415,443 169,619,654 Specific allowances (Note 14) (223,735) (230,021) Portfolio allowances (Note 15) (1,571,806) (1,511,044) Net loans 175,619,902 167,878,589 Assets pledged (48,005) (24,503) 175,571,897 167,854,086 Bills receivable 17,496,172 19,353,551 Loans 158,123,730 148,525,038 Net loans 175,619,902 167,878,589 14. Specific allowances 2014 2013 At 1 January 230,021 303,498 Currency translation 166 (17,788) Bad debts written off (63,327) (131,831) Recovery of amounts previously provided for (24,036) (54,954) Allowances for loans 82,778 136,332 Net allowances charged to income statement 58,742 81,378 Interest recognition on impaired loans (1,867) (5,236) At 30 June 2014/31 December 2013 (Note 13) 223,735 230,021 15. Portfolio allowances 2014 2013 At 1 January 1,511,044 1,350,464 Currency translation 2,229 (22,734) Allowances charged to income statement 58,533 183,314 At 30 June 2014/31 December 2013 (Note 13) 1,571,806 1,511,044 15
16. Segment information 16.1 Business segments $ million Half year ended 30 June 2014 Global Consumer/ Private Banking Global Corporate/ Investment Banking Global Treasury and Markets Insurance Others Group Total income 1,137 1,539 543 627 17 3,863 Operating profit before allowances and amortisation 428 1,084 420 528 (63) 2,397 Amortisation of intangible assets (5) (23) (28) (Allowances and impairment)/write-back for loans and other assets (36) (46) (1) # (24) (107) Operating profit after allowances and amortisation 387 1,038 419 505 (87) 2,262 At 30 June 2014 Segment assets 76,039 118,851 80,517 64,275 17,863 357,545 Unallocated assets 224 Elimination (9,355) Total assets 348,414 Segment liabilities 84,379 104,877 45,453 56,180 34,822 325,711 Unallocated liabilities 2,143 Elimination (9,355) Total liabilities 318,499 Half year ended 30 June 2013 Total income 1,095 1,367 303 394 (4) 3,155 Operating profit before allowances and amortisation 434 936 190 285 (80) 1,765 Amortisation of intangible assets (6) (23) (29) Allowances and impairment for loans and other assets (43) (53) (4) (#) (4) (104) Operating profit after allowances and amortisation 385 883 186 262 (84) 1,632 At 31 December 2013 Segment assets 72,625 118,714 76,855 61,823 17,566 347,583 Unallocated assets 199 Elimination (9,334) Total assets 338,448 Segment liabilities 77,297 104,125 51,034 54,112 30,998 317,566 Unallocated liabilities 2,137 Elimination (9,334) Total liabilities 310,369 (1) # represents amounts less than $0.5 million. 16
16. Segment information (continued) 16.1 Business segments (continued) OCBC Group s businesses are presented in the following customer segments and business activities: Global Consumer/Private Banking, Global Corporate/Investment Banking, Global Treasury and Markets, and Insurance. Global Consumer/Private Banking Global Consumer/Private Banking provides a full range of products and services to individual customers. At Global Consumer Banking, the products and services offered include deposit products (checking accounts, savings and fixed deposits), consumer loans (housing loans and other personal loans), credit cards, wealth management products (unit trusts, bancassurance products and structured deposits) and brokerage services. Private Banking caters to the specialised banking needs of high net worth individuals, offering wealth management expertise, including investment advice and portfolio management services, estate and trust planning, and wealth structuring. Global Corporate/Investment Banking Global Corporate/Investment Banking serves institutional customers ranging from large corporates and the public sector to small and medium enterprises. The products and services offered include long-term loans such as project financing, short-term credit such as overdrafts and trade financing, deposit accounts and fee-based services such as cash management and custodian services. Investment Banking comprises a comprehensive range of financing solutions, syndicated loans and advisory services, corporate finance services for initial public offerings, secondary fund-raising, takeovers and mergers, as well as customised and structured equity-linked financing. Global Treasury and Markets Global Treasury and Markets is responsible for the management of the Group s asset and liability interest rate positions, engages in foreign exchange activities, money market operations, fixed income and derivatives trading, and offers structured treasury products and financial solutions to meet customers investment and hedging needs. Income from treasury products and services offered to customers of other business segments, such as Global Consumer/Private Banking and Global Corporate/Investment Banking, is reflected in the respective business segments. Insurance The Group s insurance business, including its fund management activities, is carried out by the Bank s subsidiary Great Eastern Holdings Limited, which provides both life and general insurance products to its customers mainly in Singapore and Malaysia. Others Others comprise mainly property holding, investment holding and items not attributable to the business segments described above. 17
16. Segment information (continued) 16.2 Geographical segments $ million Total income Profit before income tax Half year ended 30 June 2014 Singapore 2,434 1,387 Malaysia 675 427 Indonesia 252 92 Greater China 342 260 Other Asia Pacific 80 53 Rest of the World 80 78 3,863 2,297 Half year ended 30 June 2013 Singapore 1,929 934 Malaysia 685 455 Indonesia 251 94 Greater China 170 80 Other Asia Pacific 80 62 Rest of the World 40 43 3,155 1,668 $ million Total assets 30 June 2014 31 December 2013 Singapore 216,105 210,541 Malaysia 65,582 60,773 Indonesia 10,617 10,219 Greater China 32,076 33,022 Other Asia Pacific 10,515 10,138 Rest of the World 13,519 13,755 348,414 338,448 The geographical information is prepared based on the country in which the transactions are booked. The geographical information is stated after elimination of intra-group transactions and balances. 17. Contingent liabilities The Group conducts businesses involving acceptances, guarantees, documentary credits and other similar transactions. 30 June 31 December 2014 2013 Guarantees and standby letters of credit 7,242,687 7,615,810 Others 5,191,845 4,581,474 12,434,532 12,197,284 18
18. Commitments Commitments comprise mainly agreements to provide credit facilities to customers. Such commitments can either be made for a fixed period, or have no specific maturity but are cancellable by the Group subject to notice requirements. 30 June 31 December 2014 2013 Credit commitments 83,485,776 76,199,064 Other commitments 1,408,606 844,131 84,894,382 77,043,195 19. Fair values of financial instruments 19.1 Valuation control framework The Group has an established control framework with respect to the measurement of fair values, which includes formalised processes for the review and validation of fair values independent of the businesses entering into the transactions. The Market Risk Management ( MRM ) function within the Group Risk Management Division is responsible for market data validation, initial model validation and ongoing performance monitoring. The Treasury Financial Control Valuation Control function within the Group Finance Division is responsible for the establishment of the overall valuation control framework. This includes, but is not limited to, reviewing and recommending appropriate valuation reserves, methodologies and adjustments, independent price testing, and identifying valuation gaps. Valuation policies are reviewed annually by the MRM function. Any material changes to the framework require the approval of the CEO and concurrence from the Board Risk Management Committee. Group Audit provides independent assurance on the respective divisions compliance with the policy. 19.2 Fair values Financial instruments comprise financial assets, financial liabilities and off-balance sheet financial instruments. The fair value of a financial instrument is the amount at which the instrument can be exchanged or settled between knowledgeable and willing parties in an arm s length transaction. For financial assets and liabilities not carried at fair value on the financial statements, the Group has determined that their fair values were not materially different from the carrying amounts at the reporting date. The carrying amounts and fair values of financial instruments of the Group are described below. Financial assets Fair values of cash and balances with central banks, placements with banks, interest and other short term receivables are expected to approximate their carrying value due to their short tenor or frequent re-pricing. Securities held by the Group, comprising government securities and debt and equity securities are substantially carried at fair value on the balance sheet. Non-bank customer loans are carried at amortised cost on the balance sheet, net of specific and portfolio allowances. The Group deemed the fair value of non-bank loans to approximate their carrying amount as the loans are substantially subject to frequent re-pricing. 19
19. Fair values of financial instruments (continued) 19.2 Fair values (continued) Financial liabilities Fair value of certain financial liabilities, which include mainly customer deposits with no stated maturity, interbank borrowings and borrowings under repurchase agreements, are expected to approximate their carrying amount due to their short tenor. For non-bank customer term deposits, cash flows based on contractual terms or derived based on certain assumptions, are discounted at market rates as at reporting date to estimate the fair value. The fair values of the Group s subordinated term notes are determined based on quoted market prices and independent broker offer prices. For other debts issued which are usually short term, the fair value approximates the carrying value. 19.3 Fair value hierarchy The Group determines the fair values of its financial assets and liabilities using various measurements. The different levels of fair value measurements are as follows: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs other than quoted prices included within Level 1 that are observable market data either directly (i.e. as prices) or indirectly (i.e. derived from observable market data). The valuation techniques that use market parameters as inputs include, but are not limited to, yield curves, volatilities and foreign exchange rates; and Level 3 inputs for the valuation that are not based on observable market data. The following table summarises the Group s assets and liabilities recorded at fair value by level of the fair value hierarchies: 30 June 2014 31 December 2013 $ million Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Recurring fair value measurements Financial assets measured at fair value Placements with and loans to banks 7,415 7,415 8,668 8,668 Debt and equity securities 16,261 5,194 81 21,536 14,101 6,187 48 20,336 Derivative receivables 40 4,206 40 4,286 158 4,980 56 5,194 Government treasury bills and securities 21,883 996 22,879 19,765 1,096 20,861 Life Assurance Fund investment assets 31,687 15,026 46,713 29,824 14,510 44,334 Total 69,871 32,837 121 102,829 63,848 35,441 104 99,393 Non-financial assets measured at fair value Life Assurance Fund investment properties 1,563 1,563 1,561 1,561 Total 1,563 1,563 1,561 1,561 Financial liabilities measured at fair value Derivative payables 54 3,784 34 3,872 152 5,311 46 5,509 Trading portfolio liabilities 804 804 898 898 Other financial liabilities 509 509 442 442 Life Assurance Fund financial liabilities 109 109 184 184 Total 858 4,402 34 5,294 1,050 5,937 46 7,033 20
19. Fair values of financial instruments (continued) 19.3 Fair value hierarchy (continued) Valuation techniques and unobservable parameters for Level 3 instruments $ million Fair value at 30 June 2014 Classification Valuation technique Unobservable input Assets Debt securities 23 Available-for-sale Discounted cash flows Credit spreads Equity securities (unquoted) 58 Available-for-sale Net asset value Net asset value Derivative receivables 40 Held for trading Option pricing model Standard deviation Total 121 Liabilities Derivative payables 34 Held for trading Option pricing model Standard deviation Total 34 Management considers that any reasonably possible changes to the unobservable input will not result in a significant financial impact. Movements in the Group s Level 3 financial assets and liabilities Availablefor-sale assets 2014 2013 Availablefor-sale Derivative Assets held receivables Total assets for trading $ million Assets held for trading Derivative receivables Total Assets measured at fair value At 1 January 48 # 56 104 201 114 98 413 Purchases 5 2 7 3 14 17 Settlements/disposals (11) (9) (20) (107) (114) (26) (247) Transfers in/(out of) Level 3 42 (1) 42 (44) (2) (5) (2) (49) Gains/(losses) recognised in - profit or loss 3 # (9) (6) # # (24) (24) - other comprehensive income (6) (#) (6) (5) # (1) (6) At 30 June/31 December 81 # 40 121 48 # 56 104 Unrealised gains/(losses) included in profit or loss for assets held at the end of the period (#) # 11 11 # # # # (1) (2) (3) Relates to transfers to Level 3 due to unavailability of market observable inputs. Relates to transfers to Level 2 due to availability of market observable inputs. # represents amounts less than $0.5 million. 2014 2013 Derivative Derivative $ million payables Total payables Total Liabilities measured at fair value At 1 January 46 46 68 68 Issues 3 3 11 11 Settlements/disposals (2) (2) (23) (23) Transfers out of Level 3 (5) (1) (5) Losses/(gains) recognised in - profit or loss (13) (13) (4) (4) - other comprehensive income # # (1) (1) At 30 June/31 December 34 34 46 46 Unrealised losses included in profit or loss for liabilities held at the end of the period (4) (4) (13) (13) (1) (2) Relates to transfers to Level 2 due to availability of market observable inputs. # represents amounts less than $0.5 million. 21
20. Subsequent event (a) On 4 July 2014, OCBC Bank announced that the pre-conditional voluntary general offer made through its wholly owned subsidiary, OCBC Pearl Limited, to acquire the entire issued share capital of Wing Hang Bank, Limited ( WHB ), has become unconditional in all respects. This was subsequent to the fulfilment of all pre-conditions on 27 June 2014 and the receipt of valid acceptances of the share offer pursuant to the irrevocable undertakings from a number of WHB shareholders, representing approximately 47.91% of the issued share capital of WHB. On 15 July 2014, OCBC Bank announced that OCBC Pearl Limited had acquired more than 50% of the entire issued share capital of WHB. Accordingly, WHB became a subsidiary of OCBC Group. On 29 July 2014, OCBC Bank announced that OCBC Pearl Limited had received valid acceptances comprising 94.55% (including the irrevocable undertakings of approximately 47.91%) in total, of the issued share capital of WHB as at close of the general offer. Taking into account approximately 2.50% acquired before the commencement of the general offer and approximately 0.47% purchased during the offer period, total shareholdings in WHB amounted to 97.52% as at the date of closure of the general offer. Accordingly, an application will be made to withdraw the listing of WHB shares from The Stock Exchange of Hong Kong Limited, and OCBC Pearl Limited will exercise its right to compulsorily acquire all remaining shares yet to be acquired. 22